I'm new to the forum and learning a lot and realizing how many mistakes I've made. In 2010 (age 50), I left a high-paying job for a low-paying dream job. I had enough $$ accumulated that I decided to hire an advisor at UBS to manage half of it. The rest was at Fidelity and self-managed. Total $3.2 mil and half of this is retirement. This year, I decided to move it all to Fidelity (except abt 350k in govt TSP and a health savings acct) and manage it myself with one exception. At UBS, I had (among other investments) about 450k in individual municipal bonds, all maturing bet 2013 and 2017. The Fidelity rep suggested that I consider opening a managed municipal bond account thru Fidelity with Breckenridge as the subadvisor. But the minimum account has to be $1 million. Fees are .35% (this is paid to Fidelity which in turn pays Breckenridge -- no other fees). I had extra cash so this seemed like a good idea at the time given Breckenridge's expertise and large inventory and the low fees. In hindsight and now that I've spent more time on this website, I realize that I should have figured out whether an addl $550k in individual munis made sense in light of my target allocation and existing fixed income holdings. What is really scaring me now is watching Breckenridge buy numerous fairly long-duration muni bonds apparently to balance out my existing short-term muni bonds that transferred over. But given how low interest rates are, I really question the upside of buying individual muni bonds right now that will mature not mature for several years. Since Jan 4, 2013, Breckenridge has bought 11 bonds of approx 50k each that mature in years 2018 through 2024. For example, I now have a general purpose bond with principal amt of $51,194 issued by Ohio St. Univ Gen Rcpts with a 5% coupon and maturity date of 6/1/20123. Current yield is 3.906. Yield to maturity is 1.990%. I bought it on 1/16/13 (issue date is 2/6/13 with first coupon date 8/1/13). It has call protection and is not subject to AMT. It is rated AA+

At UBS I was pegged moderate conservative with target allocation of 30% equities, 48% fixed, 23% multi, 10% credit. They concluded that I had enough saved to meet my goals and I was not interested in taking on more risk than necessary to gain a higher return. The Fidelity rep has recommended 40% equity, 60% bond. I am in the 28% tax tracket. Right now, on top of the $1 million in individual munis, I have $182k in 7 corporate bonds, and 520k in numerous bond funds almost all of very short duration. I will not need the money for over 20 yrs but I'm worried about the interest rate risk on these longer-duration individual muni bonds since it seems certain that interest rates will go up eventually. The yield to maturity is not so attractive that I would want to hold them until they mature. Thus, I'm questioning whether so much of my fixed income investments should be in individual muni bonds and whether I should keep these longer-duration muni bonds.

Welcome to the forum. I hope folks who are better equipped for this than I am will take a shot at answering your questions.

But, I would suggest that you develop your own asset allocation and your own IPS because things seem to be happening to your money that you don't feel comfortable with and you either didn't authorize or didn't realize were happening to your money. You need to take more control of your money and know why you are doing what you are doing. You need to know what purchases you want to make and how they'll fit in to a plan you made and feel comforatable with.

Thanks. I can't fault UBS. We had long discussions about my financial situation, goals, assumptions and I was on board with the allocation. In the end, though, I decided that I wanted to avoid the fees and the frequent trading and try to simplify my portfolio and lower the costs. But of course this means I need to figure out how to manage the funds on my own. At Fidelity, I gave Breckenridge discretionary trading authority for the one municipal bond account. In hindsight, I should have had more information about how they would be picking bonds and the duration and what impact the addl investment would have on my overall allocation (and whether individual long duration bonds make sense at this point in time -- even if the overall duration of all these Breckenridge bonds is about 5 years). I think the communications have suffered because of the way Fidelity is organized and because Breckenridge is a subadvisor.

Since it is a Monday morning, I'll bounce this up one more time and really hope some one else comes to the rescue.

I'm not in your league, so take this for what it's worth - considering it is free advice. At the top of the page there is link labelled Getting Started. That's a good place to start. More importantly, there's a link labeled (multiple spellings of the same word so may be one will be correct) Asking Questions. That'll help you arrange your portfolio in a manner others on the forum are use to seeing. That should increase the number and quality of the answers you'll receive.

spyman wrote:At Fidelity, I gave Breckenridge discretionary trading authority for the one municipal bond account.

Since you seem to be managing the rest of your portfolio fairly well, you may wish to reconsider that decision and get control over the rest of the portfolio. I would hope that you'd put a stop to all this buying until you get a handle on what you want to do. Then I'd make changes to the portfolio fairly slowly. How fast would depend on the impact to your tax situation.

As for the multiple bond funds and numerous individual bonds, a lot of folks on this forum believe - really believe - in index funds and probably handle as much (fixed income) money in their portfolios with one or two funds. They seem to be doing OK. You may wish to consider that approach and start working towards that goal over time as the bonds mature. (I personally use three index bond funds (short/ medium / long) to manage the duration of the fixed income side and a TIPs fund in case of unexpected icreases in inflation. Others disagree.)

"Everything will be all right in the end. If everything is not all right, then it is not the end." - The Best Exotic Marigold Hotel

You either choose investments yourself or you pay someone to choose them. You hired a portfolio manager for 35bps to build and manage a muni bond portfolio. I know nothing about their business model or their strategy but you need to trust their judgment, or find a new manager. That's a pretty low cost for the asset management. On the first 1M, most of the lowest cost firms will be just a but higher. I would ask a few questions about how the portfolio is managed - when are bonds bought/sold/etc. If they are truly building a diversified portfolio, they'll be doing a lot of the same things that a bond fund will do, which HAS to include buying some longer term bonds. Because interest rates "will" go up "soon" we "need" to keep our money in "short term" bonds - something I hear ad nauseam - and as such, would not pay it much attention. It's also just slightly concerning that they would keep 100% of your existing bonds bought through the broker - the broker picked those bonds with NO due diligence - they just happened to be in inventory. It's not that you want your bonds sold, but seems unlikely their "ideal" portfolio would just so happen to include what your already owned

Thanks. What you say makes sense. I will ask some questions to get a better sense of what's being done and why. I believe the current muni mgr looked over the transferred bonds to make sure they met their stds. At least one bond was exchanged. Some of the soon to mature bonds were sold.

spyman wrote:I'm new to the forum and learning a lot and realizing how many mistakes I've made. In 2010 (age 50), I left a high-paying job for a low-paying dream job. I had enough $$ accumulated that I decided to hire an advisor at UBS to manage half of it. The rest was at Fidelity and self-managed. Total $3.2 mil and half of this is retirement. This year, I decided to move it all to Fidelity (except abt 350k in govt TSP and a health savings acct) and manage it myself with one exception. At UBS, I had (among other investments) about 450k in individual municipal bonds, all maturing bet 2013 and 2017. The Fidelity rep suggested that I consider opening a managed municipal bond account thru Fidelity with Breckenridge as the subadvisor. But the minimum account has to be $1 million. Fees are .35% (this is paid to Fidelity which in turn pays Breckenridge -- no other fees). I had extra cash so this seemed like a good idea at the time given Breckenridge's expertise and large inventory and the low fees. In hindsight and now that I've spent more time on this website, I realize that I should have figured out whether an addl $550k in individual munis made sense in light of my target allocation and existing fixed income holdings. What is really scaring me now is watching Breckenridge buy numerous fairly long-duration muni bonds apparently to balance out my existing short-term muni bonds that transferred over. But given how low interest rates are, I really question the upside of buying individual muni bonds right now that will mature not mature for several years. Since Jan 4, 2013, Breckenridge has bought 11 bonds of approx 50k each that mature in years 2018 through 2024. For example, I now have a general purpose bond with principal amt of $51,194 issued by Ohio St. Univ Gen Rcpts with a 5% coupon and maturity date of 6/1/20123. Current yield is 3.906. Yield to maturity is 1.990%. I bought it on 1/16/13 (issue date is 2/6/13 with first coupon date 8/1/13). It has call protection and is not subject to AMT. It is rated AA+

At UBS I was pegged moderate conservative with target allocation of 30% equities, 48% fixed, 23% multi, 10% credit. They concluded that I had enough saved to meet my goals and I was not interested in taking on more risk than necessary to gain a higher return. The Fidelity rep has recommended 40% equity, 60% bond. I am in the 28% tax tracket. Right now, on top of the $1 million in individual munis, I have $182k in 7 corporate bonds, and 520k in numerous bond funds almost all of very short duration. I will not need the money for over 20 yrs but I'm worried about the interest rate risk on these longer-duration individual muni bonds since it seems certain that interest rates will go up eventually. The yield to maturity is not so attractive that I would want to hold them until they mature. Thus, I'm questioning whether so much of my fixed income investments should be in individual muni bonds and whether I should keep these longer-duration muni bonds.

Thanks for your help!

Hello spyman and welcome to the forum.Here is the bond you mentioned.http://emma.msrb.org/SecurityView/Secur ... 79F9E42C4Dyou own $40k worth of face which was bought at a price of 127.985 for $51,194. Nothing seems particularly out of line for this trade. THey probably bought $100k of face and put $40k in your account and $60k in others.WHy are they buying bonds like this? Cynically they need to justify their 0.35% fee. 5 year munis are yielding 0.81%http://www.bloomberg.com/markets/rates- ... -bonds/us/if they buy those for you, then 0.35% out of 0.81% is going toward their fee or 43% of your income is going to pay their fee. They realize that would look bad and you might pull your money away from them. So they have decided to buy longer term munis instead so they can better justify their fee. Sorry but that's how it works. You would be better off @ vanguard in the intermediate muni admiral fund. That has an annual fee of just 0.12% or 0.23% less. On $1m that 0.23% amounts to $2,300 a year. That money belongs in your pocket, not fidelity/breckenridge.Also the vanguard fund has a lower duration of only 5 years, or half of those ohio bonds.https://personal.vanguard.com/us/funds/ ... =INT#tab=2cheers,

Thanks for the insights. I think that for someone who wants to own individual muni bonds, there is something to be said for paying for the expertise (and greater inventory of bonds) and I suppose it makes sense to create a bond ladder if that's what they are doing. But I'm going to give more thought to the bond fund options with the lower cost. I also just don't know that I want to hold individual bonds of such long duration given how low rates are now.

spyman wrote:Thanks for the insights. I think that for someone who wants to own individual muni bonds, there is something to be said for paying for the expertise (and greater inventory of bonds) and I suppose it makes sense to create a bond ladder if that's what they are doing. But I'm going to give more thought to the bond fund options with the lower cost. I also just don't know that I want to hold individual bonds of such long duration given how low rates are now.

Well I think the expertise and the greater inventory are both illusions. If you want to buy individual muni bonds, here's what I would recommend:

1) Stick to State GO bonds. Not revenue bonds. Not local towns and counties. Just state GO bonds. States can't file for bankruptcy.2) Just buy at auction. That way you won't really risk getting ripped off.

This is a reasonably fun/interesting process to do on your own. The trouble will come when you go to sell. Sellers of small lots of muni bonds typically get ripped off.

Just as everybody else has done, I warn you that I'm no expert and that I know very little about your situation. But I have been running my own muni bond portfolio of a $million or so for more than 10 years. So,

1. Nothing you've written indicates to me that you need to do something right now. Take your time. Read Larry Swedroe's book on bonds. Take a look at the MFS (I think it's called) website for some contrary views. Google bond dealers if you can't find it. Then decide whether you want to do individual bonds by yourself, or let an adviser do it, or rely on mutual funds for your muni allocation.

2. The main thing NOT to do is sell your individual muni bonds on the secondary market. You WILL take a huge hit if you do that. Even if you decide to rely on mutual funds from now on, tell the adviser to stop buying individual bonds, and just leave alone the individual bonds you already own. Bogleheads rarely use capital letters, but the above is serious stuff.